Benefit cheats: The $22m rip-off

Wayne Patterson used 123 fake identities to steal $3.4 million over two years. Photo / Paul Estcourt

Benefit fraud cost taxpayers a record $22.6 million last year, and nine social welfare staff were sacked for ripping off the system.

Figures released to the Herald under the Official Information Act show fraud detected by the Ministry of Social Development has tripled from $7.5 million five years ago.

At that time, the ministry set up a fraud intelligence unit because of an international trend towards increasingly elaborate scams, including the use of stolen and faked identities, said chief executive Peter Hughes.

The ministry had also been embarrassed by Wayne Patterson, who used 123 fake identities to steal $3.4 million over two years - or $56,000 a fortnight - before he was caught in 2006 and jailed for eight years.

His offending is still the largest benefit fraud - the second largest amount stolen was $571,000 in 2008.

Mr Hughes said the benefit system was regularly swept and client data matched with nine other government agencies, including Inland Revenue, Internal Affairs, Housing New Zealand, Corrections, ACC and Customs.

The OIA papers also reveal the MSD has set up an internal fraud unit and nine staff members were dismissed last year for benefit fraud totalling $87,995, compared with two workers sacked for stealing $8701 six years ago.

Mr Hughes said the ministry took its responsibility for administering taxpayer funds seriously and communicated this to staff.

"Because of the position of trust they hold, we treat staff benefit frauds more seriously."

He said 29 of the 30 staff who committed fraud in the past six years were dismissed, and the other left for medical reasons.

Twenty-eight were prosecuted. Amounts stolen ranged from $380 to $41,000 and all former staffers were re-paying the money.

Accounting firm KPMG conducted a fraud review of the social welfare system in 2009.

The report found changes made to the system left the ministry less susceptible to fraud and the higher than usual number of staff frauds was a "one off".

The Auditor-General has singled out the ministry for its strong systems and approach to staff fraud.

The Herald revealed in November that the stolen identities of dead children were allegedly used by an elderly man to scam taxpayers of $450,000 in a rare type of benefit fraud.

Colin Diedrichs is accused of pretending to be two young boys - who died decades ago - to claim extra superannuation payments undetected for more than 20 years.

The alleged long-running rort was described as "methodical, determined and deliberate" and Diedrichs was arrested after a joint investigation involving the Department of Internal Affairs, the Ministry of Social Development and police.

The 82-year-old appeared in Auckland District Court to face 20 charges, including using a document to obtain a pecuniary advantage and false representation under two names.

The head of the MSD fraud unit, Mike Smith, said Diedrichs' alleged use of stolen identities was "rare and cannot happen today".

"We are constantly reviewing our controls and they are considerably stronger today than 20 years ago."

Mr Smith said more robust checks were now done to verify identity and all new benefit applications were matched against the births and deaths register - preventing someone stealing the identity of someone who has died.